SAIL concerned over higher imports

Wed, 26 May 01:30 pm

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The Indian markets continued to trade well above the dotted line as the index movement was in a range bound manner during the previous two hours of trade. Buying activity is being witnessed in stocks across sectors led by realty, IT and metal stocks. Those from the consumer durables and power sectors are amongst the lowest gainers at the moment.

The BSE-Sensex is trading up by 240 points (up 1.5%), while NSE-Nifty is trading higher by about 75 points (up 1.6%). Stocks from the midcap and smallcap spaces are trading firm as well as the BSE-Midcap index and BSE-Smallcap indices are trading higher by 0.9% each. The rupee is trading at 47.56 to the US dollar.

Steel stocks are currently trading firm led by SAIL, JSW Steel and Tata Steel. A leading business daily has reported that steel major, SAIL is mulling over cutting price of its flat steel products by Rs 1,500 to Rs 2,000 per tonne next month (June 2010) onwards. The company's management has attributed higher imports as the reason for the same. On the back of strong steel demand in Indian markets, a number of steel manufacturers have been exporting their products to the nation. As such, domestic steel manufacturers have seen a good amount of inventory building up. As such, this move is mainly aimed at reducing the inventory levels of the company. Flat steel is an important product for SAIL as nearly 60% of its revenues come from this product. The balance is shared by long steel.

The management has however added that this price cut is temporary in nature. Considering that flat products contribute to a major portion of the revenues, there would definitely be a slight impact on its operating margins. However, there would be a certain amount of room for reduction in prices considering the company earned margins of 26% during the quarter ending December 2009.

Power stocks are currently trading firm led by NHPC, Tata Power and NTPC. Power Trading Corporation of India (PTC) announced its results for the quarter and year ended March 2010 recently. For the full year, the company reported a revenue growth of 19% YoY. This was mainly on the back of a 32% YoY increase in volumes. However, as the company sourced power at a cheaper rate (as it passed on costs to the buyers) realizations were impacted. Nonetheless, at the operating level, the company's profits grew at a strong pace of 127% YoY. This was a direct impact of an improvement in trading margins. However, profits for the year increased at a muted pace of 3% YoY. Lower other income and higher tax outgo were the key reasons for the same. As for the quarterly numbers, while revenues grew by 5% YoY (despite a 47% YoY increase in volumes), profits fell by 11% YoY. Higher tax outgo and lower other income were reasons for the same as well.